OUTLOOK '13: PP imports poised to grow in Latin America

HOUSTON (ICIS)--As happened in 2012, Latin American countries will not have any significant polypropylene (PP) added capacity in 2013, inviting imports to fill in uncovered needs.

Every year, demand for petrochemicals is expected to increase at the same rate as GDP for the area, as a minimum. The latest projections from the International Monetary Fund put regional growth at about 4%, but that may be a little too optimistic, based on the slow recovery of developed countries and the latest setbacks in the economies of developing countries.

A number of 2012 presidential elections in Latin American countries delayed new developments in the region, suggesting that 2013 could be more active.

Latin demand for PP will likely respond more to regional and domestic issues. Capacity expansions have been on hold for lack of feedstock propylene.

Market participants in Mexico are optimistic about the prospects for 2013. Much of the optimism stems from growth of the automotive industry in Mexico, expected to materialize in coming months and years with the relocation of plants.

Uncertainty about currency issues has been dissipated by a solid recovery of the Mexican currency at the end of 2012.

Another big factor for PP markets will be feedstock costs. Prices skyrocketed in early 2012 as a result of cracker turnarounds that limited propylene production. PP prices followed propylene and PE sales volumes declined.

The 2012 schedule of cracker maintenance was a heavy one, aggravated by many unexpected outages. 2013 is expected to bring a lighter schedule of shutdowns, but certain things cannot be guaranteed.

Brazil, the largest petrochemical producer in the region, stabilised its currency at about R2.00/US$, but the real weakened in the last quarter of 2012 amid concerns about the economy.

Demand for polyolefins has not declined as much as other segments of the economy. With the international events that Brazil will host in coming years (2014 Soccer World Cup, 2016 Summer Olympics) it is expected that the country will have a good level of economic activity, the source said.

Argentina’s PP demand will likely have a steady year. There is preoccupation in the country caused by the difficulty in obtaining import licenses, and the restrictions the government places for liberation of dollars to the public.

The future is more uncertain in Argentina, because of the unpredictability of government regulations, but local PP demand has held during 2012.

Demand from countries on the Pacific coast of the continent is expected to rise, but import prices will challenge price levels from regional producers.

Conditions will be steady in Colombia, a country that is self-sufficient in PP production, but one that needs to export much of its domestic production to operate the plant at economical rates.

Expect to see Venezuela increasing its imports programme, as domestic demand in that nation has gone up. The local plant increased capacity by 34,000 tonnes/year to a total of 144,000 tonnes/year, but the plant has not produced at the expected rates after the expansion.

Venezuela’s presidential election in 2012 has failed to change perceptions for petrochemicals in the country. However, the delicate health of President Hugo Chavez could precipitate political and economic changes in the short term.

With China’s demand still at restricted levels, Middle East and US Gulf production of PP may target new markets in Latin America. The challenge for regional producers will be to maintain profitability in a more competitive environment.